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NTPC Limited Strong Commercialisation to Drive Earnings; Valuation Attractive

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NTPC Limited Strong Commercialisation to Drive Earnings; Valuation Attractive NTPC Limited Strong commercialisation to drive earnings; Valuation attractive Powered by the Sharekhan 3R Research Philosophy Power Sharekhan code: NTPC Company Update Update Stock 3R MATRIX + = - Summary NTPC’s risk averse regulated business model provides earnings visibility (expect a 19% Right Sector (RS) ü PAT CAGR over FY2021E-FY2023E) as robust commercialisation target (5-6 GW annually) would drive strong growth in regulated equity base. Right Quality (RQ) ü We expect gradual re-rating led by improving operational performance (PAF at 90% plus and higher PLF for coal-based power plants), 15% CAGR guidance over FY21-23 in regulated Right Valuation (RV) ü equity, and better mix of renewable energy to allay concern of ESG. Management is confident to reduce receivable to Rs. 16,000 crore by Q4FY2021 (versus Rs. 19,164 crore in Q2FY2021) as discoms are expected to clear dues of power generation + Positive = Neutral - Negative companies under power sector relief package. We maintain our Buy rating on NTPC with a revised PT of Rs. 140, as valuation remains What has changed in 3R MATRIX attractive at 0.8x is FY2023E P/BV (46% discount to historical multiple) despite improved Old New earnings visibility and dividend yield of 6-7%. Buyback price of Rs. 115 (close to FY2020 book value) would provide support to the stock price. RS NTPC Limited (NTPC) has aggregate 21.3 GW of new projects under various RQ stages of implementation at group level. Of this, the company is targeting to commercialise new capacities of 5.5 GW in FY2021E, 7.3GW in FY2022E, and 5GW RV in FY2023E. Management has guided that CWIP ratio would continue to decline to 29%/24%/19% in FY2021E/FY2022E/FY2023E (from 32% in FY2020 and 42% in Reco/View Change FY2019), which would free-up equity blocked in CWIP and the same would start earnings regulated returns. Given strong commercialisation guidance, we model Reco: Buy an 10% CAGR in regulated equity over FY2021E-FY2023E and expect lower fixed cost under-recoveries. Thus, we expect PAT to post a 19% PAT CAGR over CMP: Rs. 104 FY2021E-FY2023E along with decent RoE of 12%-13%. Moreover, with the power Price Target: Rs. 140 á sector’s relief package, discoms are expected to clear dues of power-generation companies, which would improve NTPC’s balance sheet. The buyback price of Rs. á Upgrade Maintain â Downgrade 115 is close to NTPC’s FY2020 book value and provides support to the stock price. Hence, we maintain Buy on NTPC with revised price target (PT) of Rs. 140, given Company details earnings visibility in uncertain times, attractive valuation of 0.8x its FY2023E P/ Market cap: Rs. 103,299 cr BV (46% discount to historical average one-year forward P/BV of 1.4x), and healthy dividend yield of 6-7%. 52-week high/low: Rs. 125/74 Our Call NSE volume: 309.3 lakh Valuation – Maintain Buy on NTPC with a revised PT of Rs. 140: We expect gradual (No of shares) re-rating for NTPC as operational performance would improve (lower fixed cost under- BSE code: 532555 recoveries with PAF at 90% plus and potential higher PLF incentive as coal-based power plants have seen improvement in PLF), commercialisation is likely to drive NSE code: NTPC 10% CAGR in regulated equity and improving mix of renewable energy would allay Free float: concern of ESG. We derive comfort from NTPC’s risk averse regulated business model, 484.6 cr which provides earnings visibility (expect a 19% PAT CAGR over FY2021E-FY2023E) (No of shares) as robust commercialisation would drive strong growth in regulated equity base. Moreover, NTPC’s buyback price of Rs. 115 is close to NTPC’s FY2020 book value and Shareholding (%) provides support to the stock price. NTPC also offers a healthy dividend yield of 6-7% and is trading at an attractive valuation of 0.8x its FY2023E P/BV (46% discount to Promoters 51.0 historical average one-year forward P/BV of 1.4x). Hence, we maintain our Buy rating FII 11.4 on NTPC with a revised PT of Rs. 140 (valued at 1.5x FY2023E regulated equity base + 0.6x for equity value of FY2020 CWIP). DII 34.9 Key Risks Others 2.7 Lower-than-expected commercial capacity additions amid delay in projects due to COVID-19 and coal availability shortages could affect earnings. Moreover, any write- Price chart off related to dues from discoms could impact valuations. 140 120 100 Valuation (Standalone) Rs cr 80 Particulars FY19 FY20 FY21E FY22E FY23E 60 40 Revenue 90,307 97,700 1,11,428 1,23,306 1,32,857 20 OPM (%) 25.2 27.7 28.0 30.7 31.3 20 20 19 20 - - - - Adjusted PAT 10,616 12,173 12,071 15,326 17,135 Apr Dec Dec Aug % YoY growth 2.6 14.7 -0.8 27.0 11.8 Price performance Adjusted EPS (Rs.) 10.7 12.3 12.2 15.5 17.3 P/E (x) 9.7 8.5 8.6 6.7 6.0 (%) 1m 3m 6m 12m P/B (x) 1.0 0.9 0.9 0.8 0.8 Absolute 18 15 13 -9 EV/EBITDA (x) 10.4 9.7 8.4 6.8 6.1 Relative to 12 -5 -25 -21 RoNW (%) 10.1 11.0 10.3 12.4 13.0 Sensex RoCE (%) 7.3 8.1 8.5 9.9 10.3 Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates December 17, 2020 19 Powered by the Sharekhan 3R Research Philosophy Update Stock Robust commercialisation schedule of 5-6 GW annually over FY21E-FY23E; Aggregate 21 GW of projects under implementation NTPC has aggregate 21.3 GW of new projects under various stages of implementation at group level. Out of this, the company is targeting to commercialise new capacities of 5.5 GW in FY2021E, 7.3 GW in FY2022E and 5 GW in FY2023E. The major target for near-term includes expected Commercial Operation Date (CoD) of (1) Lara 800 MW added in November 2020; (2) Gadarwara 800 MW by December 2020; (3) Meja-II 660MW by December 2020; (4) NPGCL 660MW by February 2020; Barh 660 MW by March 2020. NTPC has commercialisation target of 5-6 GW annually over the three-year period and has guided for a 15% CAGR in its regulated equity over FY2021E-FY2023E. Management has guided that CWIP ratio would continue to decline to 29%/24%/19% in FY2021E/FY2022E/FY2023E (from 32% in FY2020 and 42% in FY2019), which would free-up equity blocked in CWIP and the same would start earnings regulated returns. Projects under commissioning aggregate to 21.3GW Details of ongoing projects In MW Coal-based projects Barh-I, Bihar (3x66 MW) 1,980 Lara-I, Chattisgarh (2x800 MW) 800 Gadarwara-I, Madhya Pradesh (2x800 MW) 800 Darlipalli-I, Odisha (2x800 MW) 800 North Karanpura, Jharkhand (3x660 MW) 1,980 Tanda-II, Uttar Pradesh(2x660MW) 660 Telangana Phase-I, Telangana (2x800 MW) 1,600 Barauni St.-II, Bihar (2x250 MW) 250 Total coal-based projects 8,870 Hydro Electric Power Projects (HEPP) Tapovan Vishnugad, Uttarakhand (4x130 MW) 520 Lata Tapovan, Uttarakhand (3x57 MW) 171 Rammam Hydro, West Bengal (3x40 MW) 120 Hydro Electric Power Projects 811 Renewable Energy Projects Auraiya, Solar G, UP 20 Bilhaur, Solar G, UP 140 Bilhaur, Solar G, UP 85 Ramagumdam, Solar F, AP 100 Simhadri, Solar F, AP 25 Kayamkulam, Solar F, Kerala 22 Kayamkulam, Solar F, Kerala 70 Jetsar, Solar G, Rajasthan 160 Rihand, Solar G, UP 20 Auraiya, Solar F, UP 20 CPSU-I: Shimbhoo Ka Burj, Solar G 250 CPSU-I: Devikot, Solar G, Rajasthan 150 CPSU-I: Shimbhoo Ka Burj, Solar G 300 CPSU-II: Nokhra, Solar G, Rajasthan 300 CPSU-II: Fatehgarh, Solar G, Rajasthan 296 CPSU-II: Navalakhapatti, Solar G 230 CPSU-II: Devikot, Solar G, Rajasthan 90 December 17, 2020 20 Powered by the Sharekhan 3R Research Philosophy Update Stock Projects under commissioning aggregate to 21.3GW Details of ongoing projects In MW CPSU-I: Gandhar, Solar G, Rajasthan 20 Renewable Energy Projects 2,298 Total Standalone 11,979 Projects under JVs and Subsidiaries Coal-Based Projects Nabinagar- JV with Railways (BRBCL), Bihar, (4x250 MW) 250 Nabinagar (NPGCL), Bihar (3x660MW) 1,320 Meja, JV with UPRVUNL (MUNPL), Uttar Pradesh (2x660 MW) 660 Patratu Expansion, JV with JBVNL 2,400 Rourkela, JV with SAIL (NSPCL), Odisha 250 Durgapur, JV with SAIL (NSPCL), West Bengal (2x20MW) 40 Khulna, JV with BPDB (BIFPCL), Bangladesh (2x660MW) 1,320 THDC - Khurja (2x660 MW) 1,320 Coal-Based Projects 7,560 Hydro Projects THDC - Tehri PSP, Uttarakhand 1,000 THDC – Vishnugad Pipalkoti, Uttarakhand 444 NEEPCO – Kameng, Arunachal Pradesh 300 Hydro Projects 1,744 Renewable Projects THDC - Kasargod Solar, Kerala 50 Renewable Projects 50 Total JV and Subsidiaries 9,354 Total Ongoing Projects as on September 30, 2020 21,333 Source: NTPC FY2020 Annual Report Receivables expected to normalise by end-FY2021 NTPC’s total receivables (>45 days) from discoms increased to Rs. 19,164 crore as of September 2020 as compared to Rs. 16,400 crore as of June 2020. Management has said that the top five states account for close to Rs. 14,340 crore – Uttar Pradesh at Rs. 4,400 crore, Jammu and Kashmir at Rs. 3,700 crore, Karnataka at Rs. 2,990 crore, Madhya Pradesh at Rs. 1,900 crore, and Telangana at Rs. 1,350 crore. NTPC has received Rs. 6,700 crore under the first tranche of power sector relief package and Rs. 7,500 crore is yet to be received.
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